Banks to pay $8.5B to settle foreclosure abuses

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Ten major U.S. banks have agreed to pay $8.5 billion to settle allegations of foreclosure and loan-paperwork abuses that occurred during the height of the nation's housing crisis, said federal officials on Monday.

Companies including Wells Fargo, Bank of America, Citibank and JPMorgan Chase, will shell out $3.3 billion of that amount directly to roughly 3.8 million people who were in the foreclosure process in 2009 and 2010 -- a time when banks routinely approved loan documents with little or no approval.

The rest of the settlement money will be paid in the form of other help such as loan modifications and reductions of principal. The other loan servicers in the settlement are: Aurora, MetLife Bank, PNC, Sovereign, SunTrust, and U.S. Bank.

The deal was reached between the 10 banks, and two federal agencies -- the Office of the Comptroller of the Currency and the Federal Reserve Board. News of a settlement is significant on two fronts: the dollar amount going to borrowers and the fact the deal replaces a costly system that promised free foreclosure audits to borrowers in order to determine harm and compensation.

The Office of the Comptroller of the Currency and the Federal Reserve Board, which announced the death of the auditing program on Monday, scrapped it following criticims of low response rate from borrowers and long review times. In all, regulators received 495,000 requests after extending the submission deadline three times. At least 56,000 of those came from San Diego County. There were another 159,000 foreclosure cases that were chosen through sampling.

"When we began the Independent Foreclosure Review, the OCC pledged to fix what was broken, identify who was harmed, and compensate them for that injury," said Comptroller of the Currency Thomas J. Curry in a statement. "While today’s announcement represents a significant change in direction, it meets those original objectives by ensuring that consumers are the ones who will benefit, and that they will benefit more quickly and in a more direct manner."

Curry added: "We have learned a great deal from the reviews that have been conducted to date. However, it has become clear that carrying the process through to its conclusion would divert money away from the impacted homeowners and also needlessly delay the dispensation of compensation to affected borrowers. Our new course of action will get more money to more people more quickly, and it will speed recovery in the nation’s housing markets."

Through the new deal, the 3.8 million borrowers who are eligible for compensation will get something regardless of whether they filed review requests or not, regulators say.

Borrowers can expect between hundreds of dollars to a maximum of $125,000. The amount depends on the error or issue. Someone who was assessed an incorrect fee would likely get the minimum compensation, while someone who went through a wrongful foreclosure may get the maximum, said Bryan Hubbard, of the Office of the Comptroller of the Currency.